Goels must make better use of their realty acquistions to achieve their goals

Call it an occupational hazard. A doctor usually overdoses on caution when it comes to health, and a chartered accountant is wont to bingeing on the wrong financial products to save more tax. Sanjay Goel knows it well. The 47-year-old chartered accountant expends nearly 25% of his monthly salary on insurance premium.

Little wonder then that his other investments suffer and, hence, the need for financial planning. However, a strong base in real estate and a high monthly income will help them achieve most goals, provided they utilise their existing assets more efficiently.

Sanjay lives with his wife Madhu, a 43-year-old teacher, 18-year-old son Anurag and 12-year-old daughter Soumya, in Delhi. The couple collectively bring in a monthly income of Rs 1.82 lakh. After accounting for all their expenses, which include an EMI of Rs 41,000 for a 3-BHK house in Delhi, and a huge premium of Rs 36,003 per month for life insurance, they are left with just Rs 1,956. Apart from this, the Goels own two small plots near Bangalore and another house in Delhi, where the family resides.

The reason for the sizeable insurance premium is their 26 plans, a majority being Ulips. "Most of these were taken because they were being sold by a relative or friend and I just kept collecting them," says Sanjay. The total cover comes to Rs 1.5 crore, of which Rs 1 crore is from a term plan, which was bought for Rs 3,000 per month. More importantly, since some of these policies are nearly 20 years old, SKP Securities recommends that instead of redeeming them now, the Goels should pay the premium and use the proceeds to fund their other goals.

However, it is important to remind the Goels that by buying so many policies, they have missed an opportunity to accumulate wealth. Consider this: if the Goels had started investing Rs 20,000 per month in diversified equity funds in 1994, instead of buying insurance policies, they could have created a corpus of Rs 1.51 crore, at a compounded annual growth rate of 12%. Besides, their investment in direct equity across 23 different stocks is currently suffering a loss of Rs 1.03 lakh and they must sell the poor performers, even at a loss, and redirect the money towards mutual funds.

As for their health insurance, the family is protected adequately even though they pay a high premium. They have a family floater policy of Rs 8 lakh, which costs them Rs 3,000 per month, while Sunil has bought a cover from Star Health for his mother, which costs Rs 1,250 per month. So they don't need to spend more on insurance.

As with most parents, the main goals for Goels include saving for their children's education and weddings. However, here they hit certain roadblocks. Despite paying Rs 41,000 in home loan EMIs and Rs 36,003 on insurance policies, the returns from real estate are zero and insurance products give very low returns. Hence, unless they start putting their properties in Bangalore and Delhi to better use, they will not be able to achieve the desired corpus for their children's wedding. The Goels understand this problem. "I have been thinking about renting our second house in Delhi as the property in Bangalore is on the outskirts and will take some time before yielding anything," says Sanjay. For their son's wedding in 2020, the Goels want to accumulate Rs 50 lakh. Since all the proceeds from insurance policies will be used for their children's education and retirement, the Goels will have to invest Rs 21,735 per month in equity funds for achieving these goals. Similarly, they must invest Rs 13,433 per month for the next 13 years in equity funds to build a corpus of Rs 1 crore for their daughter's marriage.

Since the Goels do not have the required surplus, they will have to reassess their situation once they start earning from their real estate investments.

The first goal is to build a corpus of Rs 12.26 lakh for their son's higher education in 2016. For this, the proceeds from LIC moneyback policies in 2013 should be invested in a balanced fund, while those they get in 2015 should be invested in short-term liquid/debt funds.

This, along with the money from his mutual fund investments and direct equity, will help them fund the goal.

The next goal is to save Rs 33.45 lakh for their daughter's graduation in six years. They can use the proceeds from insurance policies to fund 34% of the cost, while for the balance, the Goels will have to invest Rs 14,755 in an equity mutual fund besides their existing SIP.

Currently, they do not have the required surplus, but this can be achieved by renting out one property. They also want to save Rs 26.86 lakh for her post graduation, for which the Ulip proceeds will suffice.

The final goal is to save for retirement. The good news is that their existing investments will be enough to build Rs 3 crore after 13 years. Their monthly contribution of Rs 9,120 in EPF and Rs 4,167 in the PPF will help them amass Rs 2 crore next year, while the returns from various policies will add another Rs 1 crore to the retirement kitty.